UK Economy Poised for Modest Growth Amid Inflation Pressures

The UK economy is expected to post modest growth in the second quarter, according to economists. The Office for National Statistics will release the GDP estimate on August 15, which is a crucial input for the Bank of England's next policy decision.

A Reuters poll conducted in early July projected a 0.2% quarterly expansion, down from the 0.3% recorded in the first three months of the year. This represents a slower pace of growth due to persistent inflation and elevated borrowing costs.

Services account for approximately 80% of UK output and remain the primary growth engine, driven by consumer spending on hospitality and leisure. However, manufacturing and construction have lagged behind, with the latter contracting for three consecutive months through May based on purchasing managers' surveys.

The Bank of England held its benchmark rate at 4.5% in June, and the Monetary Policy Committee has signaled a cautious approach to easing, citing stubborn services inflation and wage growth. Markets currently assign a 60% probability to a quarter-point cut at the August meeting, which could provide modest relief to households and businesses.